Determining the cost (price) of a working hour per employee

For each employee, enter how much his working hour costs. Based on this information, the software calculates how much a particular project costs, multiplying the number of hours of all employees involved in the project by their hourly rate.

Historical or budgeted costs can be used to calculate the hourly rate. For example, if you are planning to increase someone’s salary in the coming period, it is more appropriate to enter an hourly rate based on the planned salary. The total hourly rate per employee includes the cost of direct labor per hour (based on earnings, bonuses and other benefits) and the cost of other expenses that can be indirectly allocated to employees.

The calculation of the price of the total hours is shown in the table below.

It is only necessary to fill in columns 2,3 and 4 in the tables, and these are the amounts from the previous 12 months (data from the previous month can also be used, provided that the formulas in the table must be adjusted:

Auxilliary Table 1

Auxilliary Table 2

Explanation of the columns in Table 1

  1. Name of the employee, the user of the software
  2. Average usual number of working hours per day – here it is assumed that you work 8 hours a day on average
  3. The total number of working hours per day
  4. The total number of working days for which the price of direct work is calculated, here is the annual number of working days, and if the calculation is done on a monthly basis, take the number of working days for a specific month
  5. Calculation of the total number of working days for the period
  6. Calculation of price / cost of working hour
  7. Addition of general indirect costs from Table 2
  8. Calculation of the total price per working hour that is entered into the program

Explanation of the rows from Table 2

  1. Total operating expenses in the previous 12 months obtained from accounting records
  2. Costs not related to the provision of services, for example the cost of goods sold and similar
  3. Total salary costs in the previous 12 months – the total amount from Table 1, Column 2 is automatically transferred
  4. Total costs that are not included in the cost price – for example, extraordinary costs, sales, marketing costs, etc.
  5. Automatic calculation of all other indirect costs that are included in the cost of the service
  6. The total number of working hours in the previous 12 months is obtained from column 5, Table 1
  7. Price of other indirect charges per hour

Enter the hourly rate obtained in column “8” in the software in the “Employees” category:

Hourly Rate

The hourly rate can be changed at any time, but frequent changes are not recommended. It is recommended that the price per working hour can be updated annually or semi-annually.

Note:

Instead of the previous detailed calculation, only the price of direct work can be used, which is simply calculated by dividing the employee’s salary by the number of working hours on a monthly basis. In this case, it is not how much the total service costs, but only how much the labor costs relate to the service provided.